Alan Watts was a hard act to follow, but I did alright.

Each year I’m invited to lecture to our Organizational Psychology students on material from The Conscious Manager: Zen for Decision Makers. The lectures are well-received and I have fun with them.

Psychology has always big at our university; Carl Rogers, Victor Frankl, and Abraham Maslow have been faculty members here.

After my last lecture, a faculty old-timer remarked to me, “You know, long ago Alan Watts argued pretty much the same point you just did, and in this very room.”

Wow. What a rush to be a part of that tradition.

Just wanted to share the feeling with you.

Infrastructure 2.0: What will it look like?

“Web 2.0” means more interactivity, user-generated content, optimized search and cross-connections, free software, and fees for service. The term emphasizes the contrast with the first wave of web activity, called “content-push” or Web 1.0, really just an electronic form of old-style publishing, with some hyperlinks thrown in.

Tom Friedman uses “Car 2.0” to describe Better Place’s electric car cum business model in which consumers buy miles on swappable batteries recharged using clean energy.

Sustainability 1.0 was "It costs money to be green." Sustainability 2.0 is "We can make money being green."

President Obama is about to launch massive infrastructure projects for economic recovery. Governors of every state have lists of “shovel-ready” projects that will absorb billions of federal money, no problem.  But you can bet these projects are “Infrastructure 1.0.”

What will “Infrastructure 2.0” look like?

Like Car 2.0, Infra 2.0 will blend high technology with innovative business models, some involving public-private cooperation. Smart technology will be central to transforming the delivery of water, sewage, energy, telecomm, transportation, garbage disposal…

Look sharp, now, because if Obama doesn't spend the money in 2009, it won’t kick-start the economy.  If we spend it on more Infra 1.0, the economy will end up even farther behind the 8-ball, in the long run. We don’t yet know what Infra 2.0 is, but we’d better figure it out quick.

Hit the ‘comment’ button and tell me your vision of Infrastructure 2.0.

The meltdown is my fault

Joe Rightwing is still writing to newspapers, trying to blame the financial meltdown on the government.  Like many of his fellow letter writers, Joe condemns the 1977 Community Reinvestment Act, which pressured lenders to help low-income people buy houses, as a market distortion.  Without the CRA, Joe claims, the free market would have kept the economy as level as the Bonneville salt flats. 

This is the height of silliness, for many reasons.  First, the CRA did not force banks to give $300,000 mortgages to people who could only repay $100,000 loans.  What’s that you say, Joe? There are no more $100,000 houses? Tell ya what: The government never prevented builders from erecting cheap houses.  Builders don’t like to build them because they’re less profitable.  That’s the free market at work.

I mean, really, Joe, this is the kind of “devil made me do it” excuse we wouldn’t accept from a six-year-old.

Second, the economy is cyclical whether it’s regulated or not.

Third, the Enron scandal was a wake-up call, and Joe, you didn’t wake up, didn’t even stir an eyelash.  Six years later, Lehmann Brothers is gone too.  Joe, now that you’ve been smacked on both sides of your head, smell the coffee: The free market is good, but people abuse the free market.

Mortgage brokers knowingly sold loans to unqualified buyers. (Economists call this “adverse selection.”) Middlemen securitized bundles of loans, could not even begin to measure the risk of a bundle (nor, therefore, its value), pulled a value out of where the sun don’t shine, and sold it to Lehmann Bros., who, forgetting the business cycle, bought the whole mess, lock, stock and barrel.  If this ain’t abuse, beat me with a stick.

You don’t think regulation is needed, Joe? I quote Joel Bakan: "No one would seriously suggest that individuals should regulate themselves, that laws against murder, assault, and theft are unnecessary because people are socially responsible. Yet oddly, we are asked to believe that corporate persons… should be left free to govern themselves."

Joe, I’m sorry if I implied it’s only you whose been hit on the head.  We’ve both been smacked.  In fact, it was only a matter of time before somebody blamed business educators for this mess.  And now, Joe, some of your fellow letter-to-the-editor writers have snarkily noted that most of the free market abusers have… MBAs.

And they’re right.  Mea culpa, Joe.  I’m a professor, and my ex-students did this.

At the 2002 meeting of the AACSB, the agency that accredits business schools, I waited anxiously for its officials, or any faculty speakers, to mention the word “ethics.”  None did.  The only speaker at the three-day conference to bring up ethics was a luncheon presenter, the CEO of Tupperware.  (There you go, Joe, I’m not anti-business. I make a point to note that in the close wake of Enron, it was a businessman, not an academic, who first said something was amiss ethics-wise.)

AACSB’s 2008 meeting was similarly light on angst about the mortgage crisis.  But it was in Honolulu, where it’s difficult to get too worked up over anything.  A few months later, the INFORMS conference – the gathering of operations researchers – focused on technical reasons why the financial engineering models didn’t work.  Not on the ethics of using them when doing so was clearly inappropriate.

At least at the University of Chicago there’s some disagreement about whether to name the new economics research institute after Milton Friedman.  At least there’s that.

The upshot is that business faculty are not exactly hammering away at this in MBA classes. How can we prepare the next generation of business leaders if we do not make it clear in every accounting, finance, O.R., marketing, and strategy class that responsible users of the free market cannot tolerate certain behaviors?

University faculty cannot make students or graduates act ethically.  But if pressure to act ethically does not begin in b-school, it’s a lot less likely that it will begin later.  MBA graduates were the ultimate cause of this crisis, but business professors were the proximate cause.

Fellow faculty members, repeat after me, and make sure Joe hears you: “The meltdown is my fault.”

What’s love got to do with it? California’s Prop 8

"The noblest motive is the public good." - Seal of the County of San Diego

Proposition 8, banning gay marriage, passed last week in California. I’m sorry it did. Here’s my view of the heart of the issue.

The public’s interest in marriage has two, and only two, pieces. Marriage is a vehicle for conserving capital – that is, for people to get themselves out of poverty or to keep themselves out of poverty – and it is a vehicle for the secure raising of children. These pieces foster a stable society with fewer people on welfare or in prison.

It seems clear that a lasting marriage can serve both pieces regardless of the spouses’ genders. 

A voter considering only the public interest, therefore, would have cast a ballot against Prop 8.  All other arguments, of which we heard many in the run-up to the election – love, hate, civil rights, homophobia – were red herrings. Or would be, if the only consideration were the public interest.

But it wasn’t. People are entitled to vote their fears and their intolerance, and they did, and they won. 

For someone aiming at the “heart” of the issue, I’ve been awfully analytic. What’s love got to do with it? I’m wary of letting love into the realm of public interest. Demagogues use love of family and love of country to swindle young people into going off to war.  Let’s leave love to individuals, and their hearts.

Crowds – Wisdom or Madness?

What are we to make of The Wisdom of Crowds (2005) by New Yorker business columnist James Surowiecki?  After all, we were brought up on Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds. The two books are at odds with each other.

First published in 1841 and popular ever since, MacKay’s work has stood the test of time.  It introduced the notion of mob psychology, noting that cool rationality is much more likely to show itself in individuals – and disappear in larger groups. MacKay put forth the Dutch tulip bubble and the Salem witch hunts as examples.

Surowiecki uses contrary examples – including the Who Wants to Be a Millionaire audience polls – to show that crowdsourcing can work.  The idea has caught on.  Companies now crowdsource their new product development! (Look here and here for examples.)  

Well, MacKay and Surowiecki can’t both be right, can they?

The Founding Fathers distrusted crowds.  That’s why we live in a republic and not a pure democracy. The idea that crowds could be right seems to stem from John Brunner's 1975 novel Shockwave Rider and is widely implemented today in what economists call “prediction markets.” 

This somewhat interesting notion got a black eye in 2003 when DARPA rolled out its “Policy Analysis Market,” which appeared to allow anonymous people to bet on terrorist attacks. Widespread public disgust was the main result.

Moreover, if markets (that is, mobs) could predict, then a horse with nine-to-four odds at the track would actually win about four of every thirteen races against a similar field, and this is demonstrably not true. (The historical database for horse races is far vaster than any for 21st-century artificial predictive markets!) 

Did Surowiecki and the economists forget that Shockwave was a work of fiction? Ah, but careful readers see Surowiecki hedging his claim: "Under the right circumstances [emphasis added], groups are remarkably intelligent, and are often smarter than the smartest people in them."

What are the right circumstances? A French mathematician burdened by the name Marie Jean Antoine Nicolas de Caritat, marquis de Condorcet (1743–1794) proved that a large crowd is likely to be right about a simple yes-no question only if each individual in the crowd has a greater-than-even chance of getting it right.  That is, only experts should be polled.  Condorcet offers no advice on how to qualify experts. Or how to find them.

So, is it MacKay or Surowiecki?  To be sure, two heads are better than one.  And small work groups in an organization can outperform individuals. (We’ve all been through that tiresome demonstration on our HR training days.)  But two to six people ain’t a crowd…

There are two phases in every decision: divergence, which means generating alternatives, and convergence, in which all but one of the alternatives are cut away.  Crowds are good at divergent creation of ideas – the more the merrier – but when it comes to deciding (a word that means “cutting away”), I see no signs of mobs doing better than small groups or singles.

Just look at the bankers who rushed to buy securitized mortgage instruments, or voters in the 2004 presidential election. MacKay takes the day!

p.s. I’ve treated this subject in turgid academese, in a paper called “Change in Socio-Technical Systems: Researching the Multis, the Biggers, and the More Connecteds.”

There’s a bailout someone's longin’ to see...

To the tune of Ella Fitzgerald's "Someone to Watch Over Me":

There’s a bailout someone's longin’ to see

Citibank... sure wants to be

The one for Wachovia

I'm a little lamb who’s borrowed heavily

Prompt payer of bills, sure tried to be

Now Hank Paulson walks all over me

(release)

Although he may not be the man some

Would expect to pay the ransom

To my house he carries the key

Won’t you tell him please to put on some speed

Follow my lead, oh, how I need

Someone to watch over me-ee 

and Wells Fargo - Wachovia.

Followups: Maladjusted Republicans, Tax & Spend for Prosperity, and Antarctic Icebergs

Last week I ventured that voters who cling to simple answers to hugely complex questions are mentally ill.  It would be more proper to say mentally maladapted, according to former American Psychological Association executive director Bryant Welch. Welch’s new book State of Confusion: Political Manipulation and the Assault on the American Mind notes that the world was once simpler, and we are still adapted to that world – not to this one.  Moreover (and this is the main point of his book), we are ready, nay eager, to allow self-interested parties to manufacture false but simple explanations that we can buy into.  Of course he really means only one Party, and its name starts with R.

The book is reviewed in Miller-McCune Magazine.  (I recently discovered this free, non-profit journal of public issues, and like it a lot.  You can subscribe here.) The reviewer punches a bunch of holes in Welch’s thesis – and to be sure, a psychotherapist can’t make a living curing mental pathologies unless there are plenty of pathologies out there, and some therapists are not above inventing new ones from thin air. But Welch’s main argument survives the review, holes and all.

In my last entry I also recommended former U. of Wisconsin president John D. Wiley’s editorial attributing Wisconsin’s dismal economy to its business leaders’ knee-jerk “reduce taxes” answer (no matter what question is asked).  Maybe Wiley should send them to Welch for therapy.  Anyway, now here comes John E. Schwarz, Professor Emeritus at University of Arizona, whose Washington Post op-ed reasonably asks “Why is tax-and-spend worse than borrow-and-spend?”  His reasonable answer: It’s not worse, it's better. It’s not only more moral (because it doesn’t take food out of our children’s mouths) but it’s also better economically.  Schwarz shows that job creation has been far greater under Democratic administrations for the past 50 years.  No, they were not all government jobs!  They happened because government invested in expensive and risky new technologies, entailing R&D costs that no single company would pay for. The results were commercialized, creating high-paying private-sector jobs. Without increasing the National Debt.

Schwarz’ column generated a lot of comments on the Post’s web site.  One cited all the innovations that came out of RCA and other companies.  Yeah, buddy, that was then and this is now.  Private companies wanted global capital liberalization, around the turn of the century, and they got it.  The FTAs have bitten them in the ass. Now they’re in a hypercompetitive environment that won’t allow them to spend on R&D.  Another commentator claimed AT&T would still be churning out innovations if the government hadn’t busted it up.  Hoo ha!

In this month’s AARP magazine, Shirley Streshinsky writes about the 2007 wreck of the cruise ship Explorer on an Antarctic iceberg.  As it happens, my faculty colleague Dr. Bob Flood was on the Explorer. 

A business professor, Bob studies Antarctic wildlife as a hobby.  He was moonlighting as a guide on the Explorer.  Bob told his harrowing survival-at-sea story to Radio Scilly (“one of the UK's smallest radio stations”).  The MP3 file of his radio interview is fascinating.  And scary. Find it by clicking through this site.